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## What is the meaning of amortization?

Amortization is a term that is used in accounting & the meaning of this term is the process of the allocation of the cost of intangible asset that too over a period of time. One can also say that this amortization term refers to repayment of the loan principal during the specified duration.

## Amortization Calculator

## What is the use of amortization?

Essentially, this amortization comes handy especially for the given below reasons. As a matter of fact, length of time when the numerous intangible assets have been amortized differ to a great extent. And this can be from a few number of years to many years as well may be even for about 40 years or more than that. Hence, an asset has to be amortized & it is a rule which every individual has to follow. Furthermore, this amortization has to be over the approximate useful life or till the loan tenure is over when it is the case of either a bond or for that matter a loan.

However, suppose an intangible asset has some indefinite life like that of the goodwill, there is no way that such an asset can be amortized. Another point that has to be kept in mind is that this term, amortization only speaks about the intangible assets whereas the term depreciation is all about the tangible assets. While on the other hand, depletion term is about the reference to the natural resources only.

## What is an amortization calculator?

As far as the amortization calculator is concerned then it is made use of in order to determine periodic payment amount which is due on the loan especially a mortgage. This is further based on the amortization process. In addition to this, the amortization repayment model factors the other varying amounts of not only interest but also the principal that too in every instalment even if the total amount of the payment happens to be the same.

With this amortization calculator by your side, the exact amount which goes towards the interest apart from the amount that is for the payment (the ones made for the each individual payment) is revealed. Hence, this amortization calculator makes itself to be quite a useful calculator overall.

### What is the formula used in the amortization calculator?

The formula which is to be used when calculating amortization has been given below –

\(A=P{\frac {i\,(\,1\,+\,i\,)^{n}}{(\,1\,+\,i\,)^{n}\,-\,1}}\,={\frac {P\, \times\, i}{1\, -\, (\, 1\, +\, i\, )^{{-n}}}}\,=\, P\left(\, i\, +\, {\frac {i}{(\, 1\, +\, i\, )^{n}\, -\, 1}}\right)\)

As per the equation given above, A is the periodic payment amount followed by P which is the amount of the principal or the net of the initial payments which means the subtraction of the down – payments. In addition to this, i is the periodic interest rate while n means the total number of payments.

## How to use an amortization calculator?

To make use of the amortization calculator, you will first have to enter the loan amount followed by the loan term. And one should not forget to add the interest rate as well. When above details are entered, click on the calculate tab.